Answer the following in bold, Thanks Introduction Strategic planning as a discip
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Answer the following in bold, Thanks
Introduction
Strategic planning as a discipline has been concurrently taughtand exercised in the past 40 years. This relatively new concept hasbeen the major thrust in the management of US corporations. The artof strategic planning has helped the planners to forecast and copewith a variety of forces, issues and problems beyond theiroperating control. Nevertheless, all the non-foreseeable issuescannot be forecasted. Therefore, a certain productive function forthe management of these issues and crises seems to be missing in alarge number of companies. The strategic planning literature showsan experience curve in such forecasts, i.e. as mistakes are made,we learn from them. That is how contingency planning, scenarioanalysis and surprise management have evolved. The Johnson andJohnson Tylenol case, and the Union Carbide tragedy in Bhopal,India, are examples recurrently referred to in the strategicmanagement literature. The way these two companies dealt with acrisis issue has provided us with a certain level of knowledge andexperience that can be used in similar situations.
We have also learned that it is no longer a question of "if" abusiness will face a crisis; it is, rather, a question of "when,""what type" and "how prepared" the company is to deal with it(Mittroff et. al., 1996). Whether it is a natural disaster, such asan earthquake, tornado or flood, or a man made disaster, such asaccidents, wildcat strikes or product tampering, a business willeventually face some form of crisis.
The MIR space station, built and placed in operation by theSoviet Union in 1986, had a very limited mission and encounteredanticipated mechanical problems, for which the planners had devisedsolutions. With the infusion of $400 million by the USA to jointlyoperate the system, MIR faced a situation in June 1997 that was notforecasted. An unmanned cargo ship hit the spacecraft, disablingthe MIR solar panels, thus affecting the airconditioning andlighting functions. This was a crisis to deal with. Two measureswere found appropriate: a space walk for temporary repairs, and amanned supply shuttle later to perform major repairs. The questionis, could they have anticipated the problem? Well, as long as one'simagination allows, scenarios could be written. But would it bepossible to provide all the answers at the time of the planning?Probably not.
There seems to be a fine line between issues analysis and crisismanagement. As for issues analysis, it is a process to alertmanagement to emerging political, social and economic trends andcontroversies, and to mobilize the company's resources to deal withthem. As such, an issue is a condition or pressure, either internalor external to an organization that, if it continues, will have asignificant effect on the functioning of the organization or itsfuture interests (Brown, 1979). A crisis, on the other hand, isdefined as any unplanned event that can cause death or significantinjuries to employees, customers, or the public; shut down thebusiness; disrupt operations; cause physical or environmentaldamage; or threaten the facility's financial standing or publicimage (Clark 1995/1996).
For the purpose of this paper, crisis management is defined as aseries of functions or processes to identify, study and forecastcrisis issues, and set forth specific ways that would enable anorganization to prevent or cope with a crisis (Darling et al.,1996). The premise of this paper is that crises can be managed muchmore effectively if the company prepares for them. Therefore, thepaper shall review some recent crises, the way they were dealtwith, and what can be learned from them. Later, we shall deal withthe anatomy of a crisis by looking at some symptoms, and lastlydiscuss the stages of a crisis and recommend methods for preventionand intervention.
Crisis acknowledgment
Although many business leaders will acknowledge that crises area given for virtually every business firm, many of these firms donot take productive steps to address crisis situations. As onesurvey of Chief Executive officers of Fortune 500 companiesdiscovered, 85 percent said that a crisis in business isinevitable, but only 50 percent of these had taken any productiveaction in preparing a crisis plan (Augustine, 1995). Companiesgenerally go to great lengths to plan their financial growth andsuccess. But when it comes to crisis management, they often fail tothink and prepare for those eventualities that may lead to acompany's total failure. Safety violations, plants in need ofrepairs, union contracts, management succession, and choosing abrand name, etc. can become crises for which many companies fail tobe prepared until it is too late.
The tendency, in general, is to look at the company as aperpetual entity that requires plans for growth. Ignoring theprobabilities of disaster is not going to eliminate or delay theiroccurrences. Strategic planning without inclusion of crisismanagement is like sustaining life without guaranteeing life. Onereason so many companies fail to take steps to proactively plan forcrisis events, is that they fail to acknowledge the possibility ofa disaster occurring. Like an ostrich with its head in the sand,they simply choose to ignore the situation, with the hope that bynot talking about it, it will not come to pass. Hal Walker, amanagement consultant, points out "that decisions will be morerational and better received, and the crisis will be of shorterduration, for companies who prepare a proactive crisis plan"(Maynard, 1993). Making decisions while under the stress,excitement and dangers of a crisis situation is much harder thanhaving to react to a crisis in terms of a preapprovedframework.
It is said that "there are two kinds of crises: those that youmanage, and those that manage you" (Augustine, 1995). Proactiveplanning helps managers to control and resolve a crisis. Ignoringthe possibility of a crisis, on the other hand, could lead to thecrisis taking a life of its own. In 1979, the Three-Mile Islandnuclear power plant experienced a crisis when warning signalsindicated nuclear reactors were at risk of a meltdown. The systemwas equipped with a hundred or more different alarms and they allwent off. But for those who should have taken the necessary stepsto resolve the situation, there were no planned instructions as towhat should be done first. Hence, the crisis was not acknowledgedin the beginning and it became a chronic event.
In June 1997, Nike faced a crisis for which they had no existingframe of reference. A new design on the company's Summer Hoop lineof basketball shoes - with the word air written in flaming letters- had sparked a protest by Muslims, who complained the logoresembled the Arabic word for Allah, or God. The council ofAmerican-Islamic Relations threatened a global Nike boycott. Nikeapologized, recalled 38,000 pairs of shoes, and discontinued theline (Brindley, 1997). To create the brand, Nike had spent aconsiderable amount of time and money, but had never put together ageneral framework or policy to deal with such controversies. Totheir dismay, and financial loss, Nike officials had no choice butto react to the crisis. This incident has definitely signaled tothe company that spending a little more time would have preventedthe crisis. Nonetheless, it has taught the company a lesson instrategic crisis management planning.
In a business organization, symptoms or signals can alert thestrategic planners or executives of an eminent crisis. Slippingmarket share, losing strategic synergy and diminishing productivityper man hour, as well as trends, issues and developments in thesocio-economic, political and competitive environments, can signalcrises, the effects of which can be very detrimental. After all,business failures and bankruptcies are not intended. They do notusually happen overnight. They occur more because of the lack ofattention to symptoms than any other factor.
Stages of a crisis
Most crises do not occur suddenly. The signals can usually bepicked up and the symptoms checked as they emerge. A companydetermined to address these issues realizes that the real challengeis not just to recognize crises, but to recognize them in a timelyfashion (Darling et al., 1996). A crisis can consist of fourdifferent and distinct stages (Fink, 1986). The phases are:prodromal crisis stage, acute crisis stage, chronic crisis stageand crisis resolution stage. These stages can be viewed in Figure 1(crisis cycle flow chart).
Modern organizations are often called "organic" due to the factthat they are not immune from the elements of their surroundingenvironments. Very much like a living organism, organizations canbe affected by environmental factors both positively andnegatively. But today's successful organizations are characterizedby the ability to adapt by recognizing important environmentalfactors, analyzing them, evaluating the impacts and reacting tothem. The art of strategic planning (as it relates to crisismanagement) involves all of the above activities. The rightstrategy, in general, provides for preventive measures, andtreatment or resolution efforts both proactively and reactively. Itwould be quite appropriate to examine the first three stages of acrisis before taking up the treatment, resolution or interventionstage.
Prodromal crisis stage
In the field of medicine, a prodrome is a symptom of the onsetof a disease. It gives a warning signal. In business organizations,the warning lights are always blinking. No matter how successfulthe organization, a number of issues and trends may concern thebusiness if proper and timely attention is paid to them. Forexample, in 1995, Baring Bank, a UK financial institution which hadbeen in existence since 1763, suddenly and unexpectedly failed.There was ample opportunity for the bank to catch the signals thatsomething bad was on the horizon, but the company's efforts todetect that were thwarted by an internal structure that allowed asingle employee both to conduct and to oversee his own investmenttrades, and the breakdown of management oversight and internalcontrol systems (Mitroff et al., 1996). Likewise, looking inretrospect, McDonald's fast food chain was given the prodromalsymptoms before the elderly lady sued them for the spilling of avery hot cup of coffee on her lap - an event that resulted in asubstantial financial loss and tarnished image of the company.Numerous consumers had complained about the temperature of thecoffee. The warning light was on, but the company did not payattention. It would have been much simpler to pick up the signal,or to check the symptom, than facing the consequences.
In another case, Jack in the Box, a fast food chain, had severalcustomers suffer intestinal distress after eating at theirrestaurants. The prodromal symptom was there, but the company tookevasive action. Their initial approach was to look around forsomeone to blame. The lack of attention, the evasiveness and thecarelessness angered all the constituent groups, including theircustomers. The unfortunate deaths that occurred as a result of thecompany's ignoring the symptoms, and the financial losses thatfollowed, caused the company to realize that it would have beeneasier to manage the crisis directly in the prodromal stage ratherthan trying to shift the blame.
Acute crisis stage
A prodromal stage may be oblique and hard to detect. Theexamples given above, are obvious prodromes, but no action wastaken until an acute stage occurred. According to the Webster's NewCollegiate Dictionary, an acute stage occurs when a symptom"demands urgent attention." Whether the acute symptom emergessuddenly or is a transformation of a prodromal stage, an immediateaction is required. Diverting funds and other resources to thisemerging situation may cause disequilibrium and disturbance in thewhole system. It is only those organizations that have alreadyprepared a framework for these crises that can sustain their normaloperations. For example, the US public roads and bridges have for along time reflected a prodromal stage of crisis awareness byshowing cracks and occasionally a collapse. It is perhaps in lightof the obsessive decision to balance the Federal budget thatreacting to the problem has been delayed and ignored. Thissituation has entered an acute stage and at the time of thiswriting, it was reported that a bridge in Maryland had justcollapsed.
The reason why prodromes are so important to catch is that it ismuch easier to manage a crisis in this stage. In the case of mostcrises, it is much easier and more reliable to take care of theproblem before it becomes acute, before it erupts and causespossible complications (Darling et al., 1996). In an acute stage,management can only take action to control the damage. However, thelosses are incurred. Intel, the largest producer of computer chipsin the USA, had to pay an expensive price for initially refusing torecall computer chips that proved unreliable on certaincalculations. The firm attempted to play the issue down and laterlearned its lesson. At an acute stage, when accusations were madethat the Pentium Chips were not as fast as they claimed, Intelquickly admitted the problem, apologized for it, and set aboutfixing it (Mitroff et al., 1996).
Chronic crisis stage
During this stage, the symptoms are quite evident and alwayspresent. It is a period of "make or break." Being the third stage,chronic problems may prompt the company's management to once andfor all do something about the situation. It may be the beginningof recovery for some firms, and a death knell for others. Forexample, the Chrysler Corporation was only marginally successfulthroughout the 1970s. It was not, however, until the company wasnearly bankrupt that a management shake-out occurred. The drawbackat the chronic stage is that, like in a human patient, the companymay get used to "quick fixes" and "band-aid" approaches. After all,the ailment, the problem and the crisis have become an integralpart of the body of the organization. Either the organization is sooverwhelmed by prodromal and acute problems that no time orattention is paid to the chronic problems, or the managers perceivethe situation to be tolerable, thus putting the crisis on a backburner.
Crisis resolution
Crises could be detected at various stages of their development.Since the existing symptoms may be related to different problems orcrises, there is a great possibility that they may bemisinterpreted. Therefore, the people in charge may believe theyhave resolved the problem. However, in practice the symptom isoften neglected. In such situations, the symptom will offer anotherchance for resolution when it becomes acute, thereby demandingurgent care. Studies indicate that today an increasing number ofcompanies are issue-oriented and search for symptoms. Nevertheless,the lack of experience in resolving a situation and/orinappropriate handling of a crisis can lead to a chronic stage. Ofcourse, there is this last opportunity to resolve the crisis at thechronic stage. No attempt to resolve the crisis, or improperresolution, can lead to grim consequences that will ultimatelyplague the organization or even destroy it.
It must be noted that an unsolved crisis may not destroy thecompany. But, its weakening effects can ripple through theorganization and create a host of other complications.
Preventive efforts
The heart of the resolution of a crisis is in the preventiveefforts the company has initiated. This step, similar to a humanbody, is actually the least expensive, but quite often the mostoverlooked. Preventive measures deal with sensing potentialproblems (Gonzales-Herrero and Pratt, 1995). Major internalfunctions of a company such as finance, production, procurement,operations, marketing and human resources are sensitive to thesocio-economic, political-legal, competitive, technological,demographic, global and ethical factors of the externalenvironment. What is imminently more sensible and much moremanageable, is to identify the processes necessary for assessingand dealing with future crises as they arise (Jackson and Schantz,1993). At the core of this process are appropriate informationsystems, planning procedures, and decision-making techniques. Asoundly-based information system will scan the environment, gatherappropriate data, interpret this data into opportunities andchallenges, and provide a concrete foundation for strategies thatcould function as much to avoid crises as to intervene and resolvethem.
Preventive efforts, as stated before, require preparationsbefore any crisis symptoms set in. Generally strategic forecasting,contingency planning, issues analysis, and scenario analysis helpto provide a framework that could be used in avoiding andencountering crises.
Strategic forecasting
This technique primarily involves predictions. These predictionsare based on assumptions that the organization is capable ofadapting to new situations. Predictions can be made for an abruptchange when trends of the past are unusable for projecting thefuture. Many forecasting techniques are now available to managerswhich would project precisely but miss surprise events. Thesetechniques consist of qualitative, opinion quantification,extrapolation, simulation and cause and effect methods. The essenceof these forecasting techniques is to correctly predict and assessthe impact of major or broad changes rather than to predictspecific changes that may be overridden by the broader trends(Digman, 1995).
Contingency planning
Contingency plans are alternative plans that can be put intoplace if events do not occur as expected. Whereas forecasting isbased on predictable, and thus reasonably certain events, thecontingency plans an organization prepares are for less certainsituations. Airline companies usually use their administrative andmanagerial staff in the event an employee strike is faced. Whenimports are curtailed, companies have alternative plans to buy fromdomestic suppliers. Many strategic decisions of a company are basedon the framework provided by the contingency plans. When interestrates go up unpredictably, a company may refrain from expansion.When a firm is in a dominant market position and cannot find atake-over subject, it may start a stock buy-back program. As isevident, contingency plans are also based, to some extent, onpredictable environmental changes. Obviously, having preparedcontingency plans helps to not only safeguard a company against acrisis, but also to resolve crisis situations as they occur.
Issues analysis
This approach is related to and is very much similar tocontingency planning. The purpose here is to alert companydecision-makers to evolving trends in the external environment of abusiness. The business, on the other hand, steers its efforts tomake the issue advantageous to the company. For example, the trendof environmental protection demonstrated that certain companieswill eventually be forced to change methods of production, energysources used and products manufactured. DuPont has changed chemicalprocessing approaches, International Paper now recycles paper,Johns Manville no longer produces asbestos, and automakers havebeen searching for alternatives to internal combustion engines.
Scenario analysis
Scenarios are attempts to describe in detail a sequence ofevents which could possibly lead to a prescribed end-state, oralternately, to consider the possible outcomes of present choices(Grant and King, 1979). Also, the scenario is a hypotheticalsequence of events designed to draw attention to causal processesand decision points (Smith, 1982).
Scenario analysis involves thinking about favorable andunfavorable situations that might arise, and the company'salternatives for preventing, facilitating or thwarting theprecesses that caused the situations. Scenarios may pertain tomanagement succession in the case of a plane crash or death,take-over attempts and other disasters. For example, in April 1993,a dozen executives from the USA died, along with Commerce SecretaryRon Brown, in a plane crash on the way to Bosnia to initiate traderelationships. A study shows that 34 percent of the companiessurveyed had no succession plans.
A firm can very systematically take steps in its scenarioanalysis attempts. General Motors has prescribed seven steps:
1 develop a pair of scenarios (best case and worst case);
2 list alternative courses of action;
3 evaluate the outcome of the various strategies;
4 follow the same procedure for the worst case scenario;
5 combine (3) and (4) to analyze the desirability of each casesituation;
6 evaluate the strategies for the second scenario of the firststep; and
7 compare results for each of the critical factors analyzed(Naylor, 1983).
Crisis intervention
Crisis intervention occurs in several different ways. As we havediscussed before, a crisis may be diagnosed when a symptom ispresent and can be traced and the source determined. When a symptomis "spotted" the executive's objective as a crisis manager is toseize control swiftly and calculate the most direct and expedientroute to achieving a resolution of the crisis (Darling et al.,1996). When a company finds itself in the midst of a crisis, itmust be prepared to admit the reality of the crisis situation. In1984, rumors began to spread that Columbia Data Systems, a majorfirm in the early stages of the personal computer industry, hadposted a significant loss on its financial statements, had begunlaying off workers and was seeking Chapter 11 Bankruptcyprotection. The response of Columbia was to basically do nothing,perhaps believing that by not acknowledging the situation, it wouldgo away. Because their customers received no communications orreassurance from the company, they chose to believe the rumors, andstopped buying from Columbia. It took less than a year for thecompany to close its doors for good (McCune, 1994).
Refusing to acknowledge a crisis situation is the worst courseof action to take. Quick decisive action needs to be taken. DowChemical's officials believe that the first 24 hours are thecritical ones for a business facing a crisis. If the company doesnot quickly respond in that time to provide the public with genuineinformation, the firm will be judged "guilty until proven innocent"(Offer, 1996). Companies must be prepared to acknowledge a crisis,and move quickly to deal with it.
A very important step towards dealing with any crisis iseffective use of communication. A business must be willing to openthe lines of communication quickly to stakeholders. A company thatfreely shares information stands the best chance of weatheringdifficulties (Mitroff et al.,1996). Airlines have come to recognizethe critical nature of communication during a crisis. US Air, forexample, recognizes that when its crisis plan goes into effect,leadership within the company becomes a coordinator of aid andinformation to the families (Donoho, 1994). Information becomescritical to stakeholders during a time of company crisis. Companiesneed to communicate in terms of "long-term" crisis communication,as opposed to "short-term" communication (Gonzales-Herrero andPratt, 1995). This means that you maintain your plan, and makecommunication statements that do not just address current crisisissues, but the information provided and the means by which it iscommunicated are handled with a mindset of how this will affect thecompany in the future.
Since it may not be easy to think in those terms during thecrisis stage, it is imperative that companies attempt to setparameters for this during the planning stage. Martin Marietta, forexample, recognizes the need to communicate during the times ofcrisis. The firm maintains communication at a central location fromwhich it can immediately communicate to all of its keyconstituencies (Augustine, 1995). First impressions are of majorimportance when crisis strikes, and often getting the company'scase across to key stakeholders is best done directly (Birch,1994).
Keep people informed, and be honest. A survey done byPorter/Novelli, a public relations firm in New York, found that 95percent of respondents said that they "are more offended when acompany lies about a crisis than they are about the crisis itself"(Maynard, 1993). Johnson & Johnson increased its credibility bybeing honest in its communication during the Tylenol cyanide event(Mitroff et al.,1996). The Pepsi-Cola Company felt that anessential part of its recovery plan, during the event when asyringe was found in a bottle, was the use of cross-functionalteams that examined the claims being made, sorted out the facts,and then forwarded accurate information to the sales force who wasworking hard to communicate those facts to customers (McKenzie,1994).
Companies need to have an individual designated to be theprimary spokesperson for the company during a crisis situation.This person should understand the values of the company, and beable to articulate those values while addressing difficultcircumstances. The key is genuine, open communication, delivered bya credible source that can effectively convey a message of care,confidence and control. Although it would be preferable for acompany to not experience a crisis, it can be argued that in somecases a crisis can actually become an opportunity for the company.As one executive has noted, "almost every crisis does containwithin itself the seeds of success as well as the roots of failure.Finding, cultivating and harvesting that potential success is theessence of crisis management" (Augustine, 1995).
In 1983, Johnson & Johnson had a major crisis to deal withwhen some customers died from having taken cyanide-laced Tylenolproducts. The company responded quickly and forcefully. It spent agreat deal of money on repurchasing millions of capsules fromstores and customers, and on retooling its packaging, with safetyand protection of the consumer in mind. Because the companydisplayed care for its customers and commitment to thecorporation's ethical standards, the firm was clearly even morehighly regarded after the episode than it had been before(Augustine, 1995).
Companies should recognize that when dealing with a crisis, afirm is really focusing on reputation management (McKenzie, 1994).It is an opportunity for a company to enhance its image from theconsumer's point of view. Tetra Pak, a Swedish drink cartonmanufacturer, views the whole issue of crisis management as anextension of its corporate culture, stating in its philosophy thateverything a company does is part of the public perception of thecompany (McKenzie, 1994). That includes how a company responds to acrisis situation. The company that tends to practice thisphilosophy can often find value emanating from a potentiallynegative situation.
A basic tenet of crisis management is that a company mustdemonstrate that it cares, particularly if there are injuries ordeaths, and regardless of whether or not the company contributed tothe accident (Maynard, 1993). In 1991, a driver of a truck crashedinto a Luby's restaurant located in Ceylon, Texas, injuring afamily. Although the company was not at fault, the companypresident immediately flew there, and remained for several days.The company donated $100,000 to a local fund for the family.Although the restaurant was closed for five months, all 42employees were kept on the payroll. This obvious caring andconsiderate action by the firm was recognized by local consumers,and they patronized the restaurant heavily once it reopened(Maynard, 1993). A company must convey concern for customers, staffand the general population. That becomes easier if there is agenuine concern that permeates the corporate culture.
There are certain basic efforts that a company should make evenbefore a crisis starts. These efforts focus on two steps a companycan take: establishing a crisis management team, and appointingstrategic teams for scenario analysis.
Establishing a crisis management team
It is important to establish a crisis management team, with aclear chain of command, well in advance of any crisis (McKenzie,1994). The team should meet every six months or so to discusspotential crises and how to respond to them (Hoffman, 1996). Theseteams should be cross-functional, to get input from all aspects ofthe business, identify every possible disaster they can imagine thecompany facing, as well as possible responses, and identifypotential crises and determine how vulnerable the company is tothem. A full crisis plan should be developed for the crises thathave the highest risk of happening to a company, while for lesserrisk crises, a smaller contingency plan should suffice.
The plan development should focus on protecting people,communication and mitigating damage to facilities. Once the planhas been developed, all participants in the plan need to be keptinformed, and regular review must take place. It is not a staticenvironment that businesses operate in, therefore a firm mustcontinually update and test the plan. One eclectic companydesignated five functional groups (operations, funding,personnel-logistics, technical support and communications), to beoverseen by a disaster recovery manager with the assistance of adisaster recovery coordinator. Such an approach would work well inmost types of organizations. The key is to get a variety of inputfrom the various functional areas of the company, in order to moreadequately cover all potential issues on which a crisis may focus,and to establish beforehand areas of responsibility and chains ofcommand.
Appointing strategic teams for scenario analysis
Although this may appear to be a preventive measure, the peopleappointed will also gain the expertise to quickly react to a newcrisis situation. This expertise is the result of contingencyplanning over a period of time in the absence of a crisis. Theimportant thing here is the continuity of scenario analysis. Quiteoften, companies tend to discontinue the effort due to cost saving.It is evident that when a crisis arises, the company will usuallyspend much more to solve the problem than the cost of having astrategic team continuously in operation. The team analyses put towork and rehearsed can facilitate a significant pay-back at thetime of a crisis.
Conclusion
The primary focus of this article is the fact that companiesthat prepare for crisis events are better able to handle them moreefficiently and successfully. At this stage of progress in the artof strategic planning and contingency forecasting, it is quitefeasible to address crisis situations ahead of time by issuesanalysis and scenario creation. Acknowledging a crisis, andcommunicating affectively with constituent groups, will reduceimage and reputation damages. However, the primary success comesfrom prevention, preparation and intervention.
a. Briefly summarize the article (1-3paragraphs).
b. Identify 3 different companies in the article. a.Discuss whether the risk management approach taken by each companywas a preventive or intervention measure.
c. Consider whether or not the risks change when eventsare addressed in a proactive manner instead of a reactive manner.Explain your reasoning.
Explanation / Answer
Introduction
Strategic planning has helped the planners to forecast and cope with a variety of forces, issues and problems beyond their operating control. The strategic planning literature shows an experience curve in such forecasts, i.e. as mistakes are made, we learn from them.
Crisis acknowledgment
Companies generally go to great lengths to plan their financial growth and success. But when it comes to crisis management, they often fail to think and prepare for those eventualities that may lead to a company's total failure. Safety violations, plants in need of repairs, union contracts, management succession, and choosing a brand name, etc. can become crises for which many companies fail to be prepared until it is too late.
It is said that "there are two kinds of crises: those that you manage, and those that manage you" (Augustine, 1995). Proactive planning helps managers to control and resolve a crisis. In a business organization, symptoms or signals can alert the strategic planners or executives of an eminent crisis.
Stages of a crisis
A crisis can consist of four different and distinct stages: The phases are:
In the field of medicine, a prodrome is a symptom of the onset of a disease. It gives a warning signal. In business organizations, the warning lights are always blinking. No matter how successful the organization, a number of issues and trends may concern the business if proper and timely attention is paid to them.
An acute stage occurs when a symptom "demands urgent attention." Whether the acute symptom emerges suddenly or is a transformation of a prodromal stage, an immediate action is required. Diverting funds and other resources to this emerging situation may cause disequilibrium and disturbance in the whole system. It is only those organizations that have already prepared a framework for these crises that can sustain their normal operations.
During this stage, the symptoms are quite evident and always present. It is a period of "make or break." Being the third stage, chronic problems may prompt the company's management to once and for all do something about the situation. It may be the beginning of recovery for some firms, and a death knell for others.
Crises could be detected at various stages of their development. There is this last opportunity to resolve the crisis at the chronic stage.
Preventive efforts
Conclusion
The primary focus of this article is the fact that companies that prepare for crisis events are better able to handle them more efficiently and successfully. At this stage of progress in the art of strategic planning and contingency forecasting, it is quite feasible to address crisis situations ahead of time by issues analysis and scenario creation. Acknowledging a crisis, and communicating affectively with constituent groups, will reduce image and reputation damages. However, the primary success comes from prevention, preparation and intervention.
b. The 3 company references are as follows:
The plant experienced a crisis when warning signals indicated nuclear reactors were at risk of a meltdown. The system was equipped with a hundred or more different alarms and they all went off. But for those who should have taken the necessary steps to resolve the situation, there were no planned instructions as to what should be done first. Hence, the crisis was not acknowledged in the beginning and it became a chronic event.
The company faced a crisis in June 1997 for which they had no existing frame of reference. A new design on the company's Summer Hoop line of basketball shoes - with the word air written in flaming letters- had sparked a protest by Muslims, who complained the logo resembled the Arabic word for Allah, or God. The council of American-Islamic Relations threatened a global Nike boycott. Nike apologized, recalled 38,000 pairs of shoes, and discontinued the line. This incident has definitely signaled to the company that spending a little more time on risk management would have prevented the crisis.
McDonald's fast food chain was given the prodromal symptoms before the elderly lady sued them for the spilling of a very hot cup of coffee on her lap - an event that resulted in a substantial financial loss and tarnished image of the company. Numerous consumers had complained about the temperature of the coffee. The warning light was on, but the company did not pay attention. It would have been much simpler to pick up the signal, or to check the symptom, than facing the consequences.
All the above examples clearly display that the companies reacted on the crisis, rather than having a preventive measure. Companies need to perform a thorough risk and contingency assessment and take appropriate measures to avoid any kind of crisis.
c. The change in risk management when the events are addresses in proactive manner instead of a reactive manner is quite evident. Proactive risk management is more thoughtful, calculated and contemplated approach while reactive risk management happens in a panic mode way. So, the management of risk is more adhesive and thorough in case of proactive approach.